“'A sad day for the American financial system… It represents a significant blow to New York City's economy and marks the end of an era in American finance.'' That’s a 1990 quote from then-Rep. Charles Schumer discussing the demise of Drexel Burnham, a firm that pioneered junk bonds. Today, we can see that the volatility of the asset class’s early days was an important part of its maturation. Sure, pain happened, but each time the rebranded “high yield” market came back, it returned bigger. This history should be kept in mind in the wake of the SEC’s expected ruling this week that some ICO tokens are securities. Unsurprisingly, there have been the usual moans about uncertainty, the warnings about the deadening impact of regulation on innovation and the threats that the ICO business will head offshore. But unless your plan was to make a quick billion in ICOs in time to ring in 2018 with Sir Richard on Necker Island, the SEC news is constructive. Regardless of how valuable some tokens may become, there’s no reason that a six-month-old unproven idea deserves a $250-million valuation. Period. However, for those who believe in the long-term potential of decentralized and tokenized business models, the SEC’s move is likely to set the stage for more capital to pour in ─ just like the high-yield market, which saw more than $150 billion of new issuance in the first half of 2017. Not bad for a once “doomed” asset class.

This article was published as part of Weekly Briefing No. 91